Documentary Credit

Do you plan to develop new trading relationships? Are you looking for a more secure form of payment from your buyer? You can achieve this by requesting your buyer to issue a Documentary Credit (DC)/Letter of Credit (LC) to you through their bank.

A DC is an "undertaking" by a bank (Issuing Bank), on behalf of your buyer (Applicant), to make payment for goods or services provided by you (Beneficiary) within a prescribed time limit and against stipulated documents such as proof of shipment. The use of DCs is governed by internationally recognised rules (UCP600) and thus helps to avoid costly disputes.

It's all up to you - you and your buyer (the DC applicant) negotiate the terms, set the time, the place and the documents required to evidence that the terms and conditions have been met. Sounds like a lot? Don't worry, HSBC will be able to suggest common clauses and best practices.

How DCs Work

Ensure that the DC is advised to you through HSBC and we will email you the text of the credit for easy reference and if you like, hold the DC (a negotiable instrument) in safe custody for you. Consistency and accuracy are paramount in preparing DC documents so that when the time comes to present your documents, you can rely on our expertise to ensure that your documents are as discrepancy free as possible.

Financing

With an Export DC in hand, it will also be easier for you to obtain pre-shipment finance in the form of a Packing Credit, or post-shipment finance where the documents under the DC are negotiated.

New Business Opportunities

Expand your business with new opportunities made possible by Documentary Credits.

New business partners - Structured and clearly defined terms and conditions in the DC can provide the peace of mind necessary to do business between unfamiliar business partners.

New countries - Expand your markets with the secured payments of Documentary Credits. If you are not comfortable with the issuing bank, you can ask to have HSBC add its confirmation to the credit.

Different Types of DCs

There are different types of DCs such as:

Transferable

Transferred

Standby

Back-to-Back arrangements.

Use our DC Quick Reference Guide to see which one best suits your needs.

A Final Point

Documentary Credits can be either irrevocable or revocable. Revocable credits mean that the buyer can unilaterally change/cancel it after issuance. You should always insist on an irrevocable DC so that it cannot be cancelled without your prior consent.

Need more information?

For further information, please call our Customer Service Centre on 4 4722 24 or stop by at your nearest HSBC branch.You could also contact us via e-mail.